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How To Write a Mortgage Gift Letter for Your Down Payment
Buying your first home calls for plenty of celebration with house-warming parties, neighborhood greetings, and new home photos that are sure to earn “likes” on Facebook.
After you’re pre-approved and ready to buy, you may need a down payment to buy a house. Excited friends and family can contribute to your down payment by gifting funds. Mortgage gifts are a great way to cover your down payment and closing costs without spending thousands yourself.
Your lender wants to know that your gift isn’t a loan, so your donor will have to write a mortgage gift letter certifying their donation.
Here’s everything to know about mortgage gift letters.
What Is a Mortgage Gift Letter?
A mortgage gift letter is a signed letter from a donor certifying that their down payment gift money comes with no repayment expectations.
Money gifts from friends and family are a common way to help cover home buying expenses, like the down payment and closing costs. Lenders want to ensure that this money isn’t a loan, since additional debt may affect your mortgage approval.
The mortgage gift letter is an easy way to assure your lender that you don’t owe friends and family for their gift funds.
How Do You Write a Gift Letter for a Mortgage?
A mortgage gift letter must include the donor’s name and information, the gift amount, and other details about the home and gift. It’s written and signed by the donor, but your mortgage lender may have a template available to use.
A mortgage gift letter must include:
- Donor’s name and contact information
- Address of property being purchased
- Donor and buyer’s relationship
- Gift amount
- Date of gift transfer
- A statement that repayment isn’t expected by the donor
- Donor’s bank, account number, and type of account
- Donor’s signature
Once the gift letter is complete, you can provide documentation to your lender. Notaries aren’t required.
Mortgage Gift Letter Template
If your lender doesn’t offer a mortgage gift letter template, it’s easy to write yourself. Copy and customize our template below:
|To: [Name/Address of Lender]
I/We, [DONOR NAMES], certify our gift of $[GIFT AMOUNT] to [BUYER] is given without any expectation of repayment, implied or otherwise.
Our gift of $[GIFT AMOUNT] is to be applied toward the purchase of:
|Money Given By:
Name: [DONOR NAME]
|Money Received By:
Name: [BUYER NAME]
|Source of Gift Funds:
Bank: [BANK NAME]
Buyer’s Signature: _______________________________ Date: __________
Donor’s Signature: _______________________________ Date: __________
*Upon signing this gift letter, we certify that funds given to the home buyer were not made available by any persons or entities with interests in the sale of the above property, including the seller, real estate agent, lender, or other parties involved in the transaction.
When you make your home buying timeline, ask donors to provide a mortgage gift letter once your offer is accepted and before you close on the house.
Once all parties have signed the letter, you can deliver it to your lender for documentation.
Mortgage Gifts by Loan Type
Mortgage gift requirements will depend on the type of mortgage loan used to buy a home. All single-family, primary residence purchases can apply gift funds to a down payment, depending on who donates the money.
Conventional Loans and Mortgage Gifts
Conventional loans are the most common loan choice for first-time buyers and require that gift money donors are related to the buyer.
Family members eligible to donate gift funds include:
- The buyer’s spouse
- Children or dependents
- Blood relatives
- Legal relatives (for example, relatives by marriage, adoption, or legal guardianship)
- Domestic partners or fiance/fiancee
Friends and other parties can’t donate to conventional loan mortgage gifts.
FHA Loans and Mortgage Gifts
FHA loans allow more than just family and friends to donate money. Donors may include:
- Immediate family
- Close friends
- Labor unions
- Charity organizations
Extended family, including cousins, nieces, and nephews, can’t contribute to FHA loan down payments.
USDA and VA Loans and Mortgage Gifts
However, donors can’t have an interest in the property’s sale. Prohibited donors may include the seller, real estate agents, lender, and others participating in the transaction.
USDA and VA loans both offer 100 percent mortgage financing, so you can choose to use mortgage gifts for closing costs instead of the down payment.
Mortgage Gift Requirements by Property Type
Most first-time home buyers don’t have to personally contribute to their down payment if they have gift money, down payment assistance, or a low down payment mortgage.
Some property types do have specific requirements for your contributions, though:
- Single-family Homes: Single-family home purchases don’t have required contributions for the buyer. The down payment may be entirely paid through gift monies.
- Multi-family Homes: Buyers must contribute their personal money for 5 percent of the down payment if they’re buying a multi-family or second home with less than 20 percent down.
- Investment Properties: Down payment gifts can’t be used for an investment property.
You don’t have to worry about saving thousands for a down payment if you’re buying your first home.
Mortgage Gift Letter FAQs
Do you still have unanswered questions? Here’s what you need to know about your mortgage gift letter.
Do Buyers Pay Taxes on Mortgage Gifts?
Buyers don’t pay taxes on their mortgage gifts and don’t have to report gift monies to the IRS.
If a donor gifts more than $16,000 to a single buyer in 2022, they’ll be responsible for reporting that donation to the IRS. Contact a tax advisor for more information.
What Is the Maximum Gift Amount for a Mortgage?
There is no maximum mortgage gift amount that you can receive or contribute to your down payment. Donors are free to contribute as much as they’d like, and additional funds may be contributed to closing costs.
The only donation limit currently determines when a donor must report their gift to the IRS and doesn’t limit the gift amount. You can receive as much funding that’s available to you.
Does a Mortgage Gift Letter Need To Be Notarized?
No, a mortgage gift letter doesn’t need notarization. A mortgage gift letter should include specific details about the donor, buyer, and gift amount, including:
- Donor’s name, address, and relationship to the buyer
- Buyer’s name
- Address of property being purchased
- Gift amount, transfer date, and banking details
- A statement certifying that the donor doesn’t expect repayment
- Signatures of the buyer and donor
The lender can confirm the gift amount details through the buyer’s bank statements.
A mortgage gift is a generous way for friends and family to help you purchase your first home. With enough support, you may buy your home without contributing to the down payment or closing costs yourself.
A mortgage gift letter certifies that gift monies have no repayment expectations, so you can receive an accurate mortgage offer without lenders assuming a large amount of new funds is loan debt.
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